Global growth to pick up next year, US to struggle: Morgan Stanley

Global financial services major Morgan Stanley expects US markets to underperform peers in 2020 as the dollar weakens and growth outside the United States to pick up amid monetary easing and receding trade tensions.

In a report dated November 17, it predicted that real GDP growth in the US, which is "clearly in late-cycle", will slow from 2.3 percent in 2019 to 1.8 percent in 2020.

In the report, Morgan Stanley noted that the 75 basis point rate cut by the US Federal Reserve this year did stabilise the slowdown by lifting private demand but most of its benefits have already been absorbed.

"In 2020, the economy will grow more slowly as the bulk of the positive lift from lower interest rates will have been absorbed and households balance higher income with higher prices from tariffs," it said.

However, its outlook on global growth remains positive with the bank expecting recovery from the first quarter of 2020.

According to analysts at Morgan Stanley, easing trade tensions and monetary policy ease will finally put an end to recession fears reversing the downward trend of the last seven quarters.

"Easing trade tensions (the key factor in the global downturn) will reduce business uncertainty and make policy stimulus more effective," the bank’s analysts said forecasting global economic growth of 3.2 percent next year, compared to 3 percent in 2019.

The global financial major, however, noted that much depends on the outcome of US-China trade talks and whether or not the White House goes ahead with its next round of tariffs on Chinese goods scheduled for December 15.

If the tariff goes into effect, global growth in the final quarter of 2019 will slow to 2.8 percent and recovery will be delayed until Q3 2020, said the bank.

It said that monetary easing will also spur global growth as 20 out of 32 central banks that the firm tracks slashed interest rates and suggesting more easing on the horizon.

"We expect more easing, with the global weighted average policy rate touching a seven-year low by March 2020,"  analysts said.